Fighting fit

After massive losses, Australia's two biggest retailers have regrouped and launched a battle to attract brand-conscious young professionals.

Not so long ago, Australian department stores were in danger of becoming dinosaurs. While strip shopping was booming and independent boutiques were capitalising on the growing market for niche designer fashion labels, little changed on the floor at David Jones and Myer Grace Bros. They stuck to the traditional methods of department store retailing, focusing on in-house brands (read: bland) and buying safe (read: boring) when it came to other clothing labels.

That reluctance to move with the times, coupled with a few bad financial moves, plunged both retailers into financial dire straits. In 2002, Myer Grace Bros reported a $21.6 million dollar loss. Meanwhile, David Jones announced a 76 per cent slide in net profit after losing $60 million in its failed upmarket supermarket venture, Foodchain . As BRW reported: "In October last year [2002], it was hard to find anyone with a good word to say about Australia's two department store groups."

Michael Peet , retail analyst with UBS Warburg , agrees the retailers faced huge challenges: "They've both had to reinvent themselves to survive." Both have realised that the new battle front needs to be fought over designer brands. Why? Because designer labels are crucial in luring back what is probably the most lucrative customer for retailers the cashed-up, brand-conscious young professional.

Over the past decade or so, this coveted customer has abandoned department stores, shopping instead in boutiques, designers' own stores and brand chains such as Witchery. The reasons behind the shift are many but we're talking about a generation weaned on marketing and advertising. It is reluctant to spend money on labels it doesn't know especially in department stores known predominantly for catering to the tastes of its mothers and grandmothers.

Luckily for shareholders, new captains at the helm of both David Jones and Myer Grace Bros are rising to the challenge. At David Jones, chief executive Mark McInnes is continuing a hugely successful "home of designer brands" strategy which has slowly transformed the store into a key destination for hot Australian and international fashion.

In an unprecedented move, DJs cast some of Australia's leading fashion designers (all of whom are signed to exclusive deals) in its stylish television and print ads. The ads were a veritable Who's Who, featuring everyone from Collette Dinnigan and Peter Morrissey to sass & bide duo Heidi Middleton and Sarah Jane Clarke . The intended message was clear: David Jones owns Australian fashion.

Meanwhile, Myer Grace Bros is in the midst of its own transformation. Since American dynamo Dawn Robertson - previously at the US company Federated Department Stores , which owns Bloomingdales and Macy's - came on board as managing director in May 2002, the retailer has also switched its focus to designer brands.

"Over the past few years Myer has had many different strategies," admits Robertson. "They've been upmarket, they've been downmarket, they've been a lifestyle and destination store, they've been a productivity store. Through all of that, they lost sight of who their customer was. They were trying to be all things to all people."

To get Myer Grace Bros back on track, Robertson, who has 26 years' experience working for US department stores, "refocused on what the customers wanted versus what sometimes was just what the management wanted".

And she is rolling out the changes accordingly. After announcing exclusive deals with Country Road, Cue and US labels J-Lo and Sean John , she is set to announce additions, many of them local fashion designers, in the line-up for winter 2004.

So, is the "house of brands" strategy working? The figures suggest it is: for the last financial year, Myer Grace Bros's Robertson has turned the company's losses into earnings to the tune of $25.2 million. And since McInnes took over at David Jones, in January last year, the company's share price has been rising by just over 30 per cent up to August last year.

But what do the punters think? Kirsty Wilson, a 28-year-old account director for a handling house, says she's shopping in department stores again for the first time in years. "They seem to have updated their images," says Wilson. "They used to be full of boring stuff made by labels I'd never heard of but now they're starting to stock some of my favourite designers and some interesting new ones as well."

Hot Melbourne-based fashion designer Kit Willow , who is stocked in David Jones, has also noticed the necessary transformation. "The department stores needed to update to become more contemporary. Young people respond to unique, boutique fashion labels. They have higher disposable incomes now and they want those labels. Until recently, department stores just didn't cater to them."

Willow was picked up by David Jones in her first season, something that would not have happened until recently. Department stores are known for being extremely cautious with new labels, no matter how hot they are, preferring to see how they perform in small boutiques for a few seasons before considering them. But as the demand for new labels grows, department stores have been forced to take more risks.

"The younger customer is looking for new designer brands, such as sass & bide," says Colette Garnsey , group general manager for apparel, cosmetics and marketing at David Jones and the person credited with orchestrating the stellar line-up of Australian designers at the store. "We just need to work more closely with those young designers and smaller companies to help them do business with us."

As both retailers focus on trying to capture the same younger market, the battle to sign clothing labels up to exclusive deals has begun. "The competition between them is certainly intensifying," says UBS Warburg's Peet .

It's music to the ears of Australian Fashion Week's boss, Simon Lock . "When we first started Fashion Week eight years ago, it was difficult to attract the attention of either department store. They weren't very interested in new talent back then. Mostly they stuck with the large commercial brands," he recalls. "Now we've started to see more aggression by the buying teams at Fashion Week itself. It's the classic race backstage to be the first to congratulate the designer."

It brings joy to Lock's heart. "We want to fan the fire of competition between David Jones and Myer. We want them both sending as large a buying team as possible. We want them fighting over the exclusive rights for Australian designers because ultimately that means that Australian designers have a greater market share in their own country."

The competition between the stores isn't limited to high-end designer labels and hot newcomers. A tussle over some of Australia's largest commercial brands was played out in July when, after being stocked in David Jones for 30 years, Australian icon Country Road announced its defection to Myer Grace Bros.

It wasn't just a matter of bruised egos the loss of Country Road left David Jones with a reported $20 million-$25 million loss in sales. But soon after the announcement, David Jones dropped its own bombshell it had entered into an exclusive agreement with another of Australia's most successful brand chains, Witchery, which was considered quite a coup, and had also lured Lisa Ho away from Myer Grace Bros.

Some retail analysts are concerned that the strategies of each store are too similar, that both cannot survive in what they believe to be a limited market for high-profile designer fashion labels and brands. After watching this market explode before his eyes for the past eight years, Lock believes it's not a matter of choice anymore.

"There is only one marketplace for department stores now and it's for branded merchandise."

There is no doubt both David Jones and Myer Grace Bros agree on that one.